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  • Writer's picturemgaer

Multiple Changes Ahead For The FAFSA

Updated: May 6, 2023

This will go into effect starting for the 2024-2025 school year in which the FAFSA is available in December 2023.

Parents will have to wait longer this year to fill out the Free Application for Federal Student Aid.
Usually, the FAFSA, which millions of families complete each year, is released on Oct. 1. The U.S. Department of Education, however, recently announced that the FAFSA for the 2024–2025 school year won’t be available until sometime in December.

The delay is being blamed on the significant overhaul of the FAFSA, which the Department of Education has characterized as the “most ambitious and significant redesign of the federal student aid application in decades.”

Changes To The FAFSA
Here are some highlights of the new FAFSA, which will generally be favorable for lower-income students and bad news for families with multiple children in college, small businesses, and households with divorce.

Change No. 1
The term Expected Family Contribution (EFC) which refers to how much the federal aid formula believes a household can pay for college, is being changed to Student Aid Index (SAI). Rarely have I ever seen a family pay equal to or less than this formula comes up with. The majority of the time schools charge families much more than the EFC.

This change is meaningless, but schools wanted this change because they didn’t want families protesting that their EFC didn’t match what they could afford or that they assumed they wouldn’t have to pay any more than their EFC. I don’t see how changing the name will help.

Change No. 2
The new FAFSA will be a huge financial burden for families with more than one child in college. Traditionally, parents captured a 50% break on their EFC with two children in college and the discount increased to 66% with three.

Here’s an example of how this has worked. Let’s say a household’s EFC is $40,000 when one child is in college. When a sibling starts college the next year, the EFC for each child would be $20,000. However, your TOTAL EFC would still be $40,000.

The unfortunate elimination of the multiple-child discount was made to honor retired U.S. Sen. Lamar Alexander (R-TN), who felt the discount wasn’t fair to parents with one child in college or who spaced their children farther apart. Which is absolutely ridiculous. In essence, you are punishing parents for having two children within four years! The formula originally gave this discount because it felt that the EFC was representable for paying for only one student, and if the family had two, how can they pay double? This is going to be a real financial hardship for multiple student families.

Change No. 3
The new FAFSA didn’t do any favors for small-business owners and family farms. In the past, if you owned a business with less than 100 employees, your business assets were excluded from the formula. That exemption is gone.

How those assets would impact a household’s Student Aid Index will depend on a family’s adjusted gross income as well as the value of the business or farm. For the most part, the change will not affect those families with a Net Worth of less than $250,000(not including the family home)

Change No. 4
The changes will also represent a hardship for some divorced parents since the traditional formula has made it easy for the custodial parent to be the one who has the lowest income and assets. Traditionally, the custodial parent, who completes the FASFA, has been the one whom the student has lived the majority of a 12-month period ending on the day the FAFSA is filed. With the new formula, it’s the parent who has spent the most money on the child who will be the one completing the FAFSA, and that will often be the parent who is better off financially.

This may come as a shock to some, but many divorces are not amicable. (Thick sarcasm) I have seen many situations where it is completely hostile and one parent refuses to cooperate or even talk with their child or ex-spouse. This is going to cause headaches for many families if the parent who supplies the support refuses to cooperate.

Meanwhile, child support will be reported as an asset rather than as income. This change will increase the student’s financial aid eligibility since assets are assessed less harshly than income.

Change No. 5
The FAFSA changes represent good news for grandparents and other generous relatives and others who want to help with a child’s college costs. Starting with the 2024–2025 school year, qualified 529 distributions that are made by grandparents, aunts, uncles, and others will no longer be assessed as a child’s untaxed income, which used to be assessed at 50%. So if Grandma withdrew $10,000 from a 529 plan she owned and used it for the student’s education expenses, this would add $5,000 to your EFC thus reducing eligibility by that amount. The rules on withdrawing money from 529 are quite complex and I will be writing about them in the upcoming weeks.

Change No. 6
The federal financial aid formula will become more generous to lower-income students. The changes will allow an additional 1.7 million students to qualify for the maximum Pell Grant, which is the federal program for low- and middle-income students. In 2023-2024 the maximum amount was worth $7395.
The Pell Grant is an entitlement that is determined solely by your EFC. So if your EFC is in the eligibility range you are guaranteed to receive the specific amount you qualify for.

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